QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March
31, 2012

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-34468

VITACOST.COM, INC.

(Exact Name of Registrant as Specified
in Its Charter)

Delaware

37-1333024

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

5400 Broken Sound Blvd. - NW, Suite 500, Boca Raton, FL

33487-3521

(Address of Principal Executive Offices)

(Zip Code)

(561) 982-4180

(Registrant’s Telephone Number, Including
Area Code)

Indicate by check mark
whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x
No ¨

Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes x
No ¨

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨

Accelerated filer x

Non-accelerated filer ¨

Smaller reporting company ¨

(Do not check if a smaller reporting company)

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x

As of May
7, 2012, the registrant has 33,252,021 shares of common stock outstanding.

Vitacost.com, Inc. Form 10-Q

Table of Contents

Page

PART I.

FINANCIAL INFORMATION

3

ITEM 1.

FINANCIAL STATEMENTS

3

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Vitacost.com, Inc. (“Vitacost” or the
“Company”) is a leading online retailer of health and wellness products, including dietary supplements such as vitamins,
minerals, herbs and other botanicals, amino acids and metabolites, as well as cosmetics, organic body and personal care products,
pet products, sports nutrition and health foods. Vitacost was incorporated in 1994 and began its online retail activity in 1999. Vitacost
sells an internally developed proprietary line of nutraceuticals as well as a wide selection of other manufacturers’ brand-name
health and wellness products. The Company ships products from two distribution centers located in Lexington, North Carolina
and Las Vegas, Nevada.

Basis of presentation

The accompanying unaudited consolidated financial statements
of Vitacost as of March 31, 2012, and for the three months ended March 31, 2012 and 2011, have been prepared in accordance with
accounting principles generally accepted in the United States for interim financial information along with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally
accepted accounting principles (“GAAP”) for annual financial statements. In management’s opinion, Vitacost has
made all adjustments (consisting of normal, recurring and non-recurring adjustments) during the quarter that were considered necessary
for the fair presentation of the financial position and operating results of the Company. The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the financial statements
and accompanying notes. Actual results could differ from those estimates. In addition, the results of operations for the three
months ended March 31, 2012 are not necessarily indicative of the results for the entire fiscal year ending December 31, 2012,
or for any other period. These unaudited consolidated financial statements should be read in conjunction with the consolidated
financial statements and related notes, together with management’s discussion and analysis of financial position and results
of operations, contained in Vitacost’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (the “Form
10-K”).

Significant Accounting Policies

Principles of consolidation:

The consolidated financial statements include the accounts of
Vitacost and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Revision to previously issued financial statements:

The Company misclassified its outstanding checks in its March
31, 2011 consolidated balance sheet as increases in accounts payable instead of reductions of cash and cash equivalents. This misclassification
also resulted in an understatement of net cash provided by operating activities for the quarter ended March 31, 2011. The Company
has revised its consolidated statement of cash flows for the quarter ended March 31, 2011 to properly reflect the treatment of
the outstanding checks. This revision, which the Company concluded is not material, does not impact net sales, gross profit, operating
loss, net loss, or the working capital surplus. A summary of the effect of the revision on the consolidated statement of cash flows
is as follows:

Quarter Ended March 31, 2011

(In thousands)

As reported

Adjustment

As revised

Increase (decrease) in accounts payable

(2,437

)

(911

)

(3,348

)

Net cash provided by (used in) operating activities

(608

)

(911

)

(1,519

)

Reclassifications:

Reclassifications to the 2011 Consolidated Statements of Operations
and Statements of Cash Flows have been made to conform to the 2012 presentation.

7

Earnings per share

The Company computed earnings per share by dividing net income
by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by giving
effect to all potentially dilutive common shares, including stock options and warrants. The following table reconciles basic weighted-average
shares outstanding to diluted weighted-average shares outstanding for the three months ended March 31, 2012 and 2011:

Three Months Ended March 31,

2012

2011

(In thousands)

Weighted-average shares outstanding - basic

30,591

27,790

Effect of dilutive securities

-

-

Weighted-average shares outstanding - diluted

30,591

27,790

For periods where the Company reported income, common stock
equivalents are not included in the computation of diluted earnings per share to the extent that their exercise price exceeded
the market value, since the result would be antidilutive. For the periods where the Company reported losses, all common stock equivalents
are excluded from the computation of diluted earnings per share, since the result would be antidilutive. Securities that could
potentially dilute earnings per share in the future, but which were not included in the calculation of diluted earnings per share
because to do so would have been antidilutive for the periods presented, are as follows:

Three Months Ended March 31,

2012

2011

(In thousands)

Stock options

2,325

2,380

Warrants

1,681

-

Total antidilutive common stock equivalent excluded from diluted earnings per share

4,006

2,380

Restricted cash:

Restricted cash consists of cash pledged as collateral to secure
a vendor obligation.

Fair value of financial instruments:

Assets and liabilities carried at fair value are classified
and disclosed in one of the following three categories:

Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3:

Unobservable inputs that are not corroborated by market data.

The carrying amounts of other financial instruments, including
cash, cash equivalents, accounts receivable, other receivables and accounts payable approximate fair value due to the short maturity
of these instruments. We consider the fair value of our cash and cash equivalents to be a Level 1 instrument within the fair value
hierarchy.

Concentration of credit risk:

The Company’s cash and cash equivalents were held by one
major financial institution and for certain accounts exceed federally insured limits. These cash and cash equivalent balances could
be impacted if the underlying financial institution fails or is subjected to other adverse conditions in the financial markets. To
date the Company has experienced no loss or lack of access to its cash and cash equivalents.

Recent Accounting Guidance

Recently adopted accounting guidance:

On January 1, 2012, the Company adopted provisions of the authoritative
guidance related to changes to fair value measurement and disclosure. Specifically, the guidance includes clarification about when
the concept of highest and best use is applicable to fair value measurements, requires quantitative disclosures about inputs used
and qualitative disclosures about the sensitivity of recurring Level 3 measurements, and requires the classification of all assets
and liabilities measured at fair value in the fair value hierarchy, including those assets and liabilities which are not recorded
at fair value but for which fair value is disclosed. The adoption of this guidance did not have a material impact on the Company’s
consolidated financial statements.

8

On January 1, 2012, the Company adopted provisions of the authoritative
guidance related to the changes to the presentation of comprehensive income. Specifically, the guidance gives an entity the option
to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either
in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company elected to
present components of net income and other comprehensive income in a single continuous statement. The components of other comprehensive
income are presented net of the related tax effects. Other than the changes in presentation, the adoption of this guidance did
not have a material impact on the Company’s consolidated financial statements.

2. Private Placement

On February 16, 2012, the Company entered into a Purchase Agreement
(the “Purchase Agreement”) by and among Vitacost, JHH Capital, LLC, an entity affiliated with Jeffrey Horowitz, our
Chief Executive Officer, (“JHH”), Great Hill Equity Partners III, L.P. (“Great Hill III”), Great Hill Equity
Partners IV, L.P. (“Great Hill IV”), Great Hill Investors, LLC (“Great Hill Investors”), Freshford Partners,
LP (“Freshford Partners”), Freshford Master Fund, Ltd (“Freshford Master Fund”) and Baron Small Cap Fund
(“Baron” and, together with JHH, Great Hill III, Great Hill IV, Great Hill Investors, Freshford Partners, Freshford
Master Fund, collectively, the “Investors”) pursuant to which the Investors purchased, and Vitacost sold, an aggregate
of 4.9 million shares of the Company’s common stock at a purchase price of $7.04 per share, and warrants to purchase an aggregate
of 1.7 million shares of the Company’s common stock for an aggregate purchase price of $34.8 million. The warrants have an
exercise price of $7.04 per share and a term of four years. The net proceeds of $33.6 million, after the deduction of fees of $1.2
million incurred in connection with the transaction, were allocated between common stock and warrants based on their relative fair
values as of the purchase date.

3. Inventory

Inventory consists of the following as of March 31, 2012 and
December 31, 2011:

March 31,

December 31,

2012

2011

(In thousands)

Raw materials

$

3,185

$

2,959

Work in process

2,643

2,591

Finished goods

30,669

29,272

$

36,497

$

34,822

4. Property and Equipment

Property and equipment consists of the following as of March
31, 2012 and December 31, 2011:

March 31,

December 31,

2012

2011

(In thousands)

Buildings and building improvements

$

12,467

$

12,428

Furniture, fixtures and equipment

21,872

21,594

Computers

3,038

2,709

Software

7,433

7,235

Leasehold improvements

2,648

2,620

Land

460

460

47,918

47,046

Less accumulated depreciation

(16,506

)

(14,995

)

31,412

32,051

Construction-in-progress

3,013

1,578

$

34,425

$

33,629

Construction-in-progress was primarily
related to the expansion of the Company’s Lexington, North Carolina distribution facility.

5. Stock Option Plan

In September 2011, the Company obtained approval of the 2011
Incentive Compensation Plan (the “Plan”) which replaced the 2007 Stock Award Plan (the “2007 Plan”). The
2007 Plan, however, will continue to govern awards previously granted under it. The Plan share reserve includes the sum of 6.0
million shares of the Company’s common stock, plus (i) any shares of its common stock which have been reserved but not issued
pursuant to any awards granted under the 2007 Plan, and (ii) the number of shares subject to outstanding awards under the 2007
Plan that expire or otherwise terminate without having been exercised in full, or are forfeited to or repurchased by the Company.

9

A summary of the Company’s stock option activity related
to common stock for the three months ended March 31, 2012 and 2011 is as follows:

2012

2011

Weighted-

Weighted-

Average

Average

Exercise

Exercise

Shares

Price

Shares

Price

(In thousands except exercise price)

Outstanding at beginning of period

4,262

$

5.69

2,718

$

6.42

Granted

1,653

6.95

-

-

Exercised

(337

)

3.69

(10

)

0.16

Forfeited

(89

)

6.87

(3

)

9.72

Outstanding at period end

5,489

$

6.18

2,705

$

6.44

Exercisable at period end

2,325

$

6.46

2,380

$

6.11

As of March 31, 2012 and March 31, 2011, there were $9.4 million
and $1.6 million, respectively, of total unrecognized compensation cost, net of estimated forfeitures, related to stock options
granted under the Company’s stock incentive plans, which is expected to be recognized over a weighted average period of 3.62
and 2.17 years, respectively.

6. Contingencies

Securities Class Action

On May 24, 2010, a punitive class action complaint was filed
in the United States District Court for the Southern District of Florida against the Company and certain current and former officers
and directors by a stockholder on behalf of herself and other stockholders who purchased Vitacost common stock between September
24, 2009 and April 20, 2010, captioned Miyahira v. Vitacost.com, Inc., Ira P. Kerker, Richard P. Smith, Stewart Gitler, Allen S.
Josephs, David N. Ilfeld, Lawrence A. Pabst, Eran Ezra, and Robert G. Trapp, Case 9:10-cv-80644-KLR. After being appointed to represent
the purported class of shareholders, the lead plaintiffs filed an amended complaint asserting claims under Sections 11, 12(a)(2),
and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule
10b-5 promulgated thereunder against Vitacost, its current and former officers and directors, and the underwriters of its initial
public offering (“IPO”). On December 12, 2011, the Court granted defendants’ motion to dismiss the complaint,
and granted plaintiffs leave to amend.

On January 11, 2012, lead plaintiff filed its second amended
complaint asserting claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 against Vitacost, its current and
former officers and directors, and its underwriters. Lead plaintiff purports to bring its action on behalf of investors who purchased
stock in connection with or traceable to the Company’s IPO between September 24, 2009 and April 20, 2010. The complaint alleges
that defendants violated the federal securities laws during the period by, among other things, disseminating false and misleading
statements and/or concealing material facts concerning the Company’s current and prospective business and financial results.
The complaint also alleges that as a result of these actions the Company’s stock price was artificially inflated during the
class period. The complaint seeks unspecified compensatory damages, costs, and expenses.

Defendants’ motion to dismiss the
second amended complaint has been fully briefed, and the Southern District of Florida held oral argument on the motion on April
12, 2012. The Court has not yet issued an order on the motion to dismiss.

The Company records provisions in its consolidated financial
statements for pending litigation when it determines that an unfavorable outcome is probable and the amount of loss can be reasonably
estimated. As of March 31, 2012, the Company has concluded that it is not probable that a loss has been incurred and is unable
to estimate the possible loss or range of loss that could result from an unfavorable verdict. Therefore, the Company has not provided
any amounts in the consolidated financial statements for an unfavorable outcome. The Company believes, and has been so advised
by counsel, that it has meritorious defenses to the complaint pending against it and will vigorously defend against it. It is possible
that the Company’s consolidated balance sheets, statements of operations, or cash flows could be materially adversely affected
by an unfavorable outcome.

Other matters

In addition to the matter described above, the Company is involved
in litigation and administrative proceedings primarily arising in the normal course of its business. The Company has accrued $0.3
million related to a software litigation settlement offer as of March 31, 2012. In the opinion of the Company, except as set forth
above, its liability, if any, under any other pending litigation or administrative proceedings, even if determined adversely, would
not materially affect its financial condition, results of operations or cash flows. Furthermore, the Company has not been the subject
of any product liability litigation.

10

7. Income Taxes

The Company evaluates its deferred tax assets on a regular basis
to determine if valuation allowances are required. In its evaluation, the Company considers taxable loss carryback availability,
expectations of sufficient future taxable income, trends in earnings, existence of taxable income in recent years, the future reversal
of temporary differences and available tax planning strategies that could be implemented, if required. Valuation allowances
are established based on the consideration of all available evidence using a more likely than not standard. Based on
the Company’s evaluation, a valuation allowance of $1.3 million was established against its net deferred tax assets for the
three months ended March 31, 2012. This amount was in addition to the $11.2 million valuation allowance that was recorded as of
December 31, 2011.

11

ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing
elsewhere in this Quarterly Report on Form 10-Q.

This Quarterly Report on Form 10-Q contains trend analyses and
other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of
the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements concerning our plans, objectives,
goals, strategies, future events, future revenue or performance, capital expenditures, financing needs, expected outcomes of litigation,
and other information that is not historical information. In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "intend," "potential," "continue,"
"seek" or the negative of these terms or other comparable terminology or by discussions of strategy.

All forward-looking statements, including, without limitation,
our examination of historical operating trends, are based upon our current expectations and various assumptions. We believe there
is a reasonable basis for our expectations and beliefs, but they are inherently uncertain. We may not realize our expectations
and our beliefs may not prove correct. Actual results could differ materially from those described or implied by such forward-looking
statements and are subject to change due to inherent risks and uncertainties such as those disclosed or incorporated by reference
to our filings with the Securities and Exchange Commission (“SEC”). Important factors that could cause our actual results,
performance and achievements, or industry results to differ materially from the forward-looking statements are set forth in this
Quarterly Report on Form 10-Q, under the heading "Risk Factors" and include, among others:

·

the current global economic climate;

·

significant competition in our industry;

·

unfavorable publicity or consumer perception of our products on the Internet;

·

the incurrence of material product liability and product recall costs;

·

costs of compliance and our failure to comply with government regulations;

·

our inability to successfully defend intellectual property claims;

·

our failure to keep pace with the changing demands and preferences of our customers for new products;

·

disruptions in our manufacturing system, including our information technology systems, or losses of manufacturing certifications; and

·

the lack of long-term experience with human consumption of some of our products with innovative ingredients.

Overview

We are a leading online retailer,
based on annual sales volume, of health and wellness products, including dietary supplements such as vitamins, minerals, herbs
and other botanicals, amino acids and metabolites (which we refer to as “VMHS”), as well as cosmetics, natural personal
care products, pet products, sports nutrition and health foods. We sell these products directly to consumers primarily through
our website, www.vitacost.com. We strive to offer our customers the broadest selection
of healthy living products, while providing superior customer service and timely and accurate delivery.

We were incorporated in Delaware in May
1994 and began operations as a catalog retailer of third-party vitamins and supplements under the name Nature’s Wealth Company.
In 1999, we launched Vitacost.com and introduced our proprietary vitamins and supplements under our NSI brand. In 2000, we began
operations under the name Vitacost.com, Inc. In September 2009 the Company completed its Initial Public Offering.

Private Placement

On February 16, 2012, we entered into the Purchase
Agreement pursuant to which the Investors purchased, and we sold, an aggregate of 4.9 million shares of our common stock at a
purchase price of $7.04 per share, and warrants to purchase an aggregate of 1.7 million shares of common stock for an
aggregate purchase price of $34.8 million. The warrants have an exercise price of $7.04 per share and a term of four years.
The proceeds from the Financing will be used primarily to expand and optimize our distribution network. Of this amount, an
estimated $5.0 million will be used to complete the expansion of our existing distribution center in Lexington, North
Carolina and increase storage capacity at our other existing distribution center located in Las Vegas, Nevada. This is
expected to be substantially complete by the end of the second quarter 2012. In addition, an estimated $15.0 million will be
used to invest in and stock a third distribution center to support our high level of sales growth. We
initially intended to begin investing in a new facility in the second half of 2012, but due to the significant increase in
our capacity associated with the distribution center expansions in North Carolina and Nevada, we now expect to begin in 2013.
We intend to use the remaining proceeds from the Financing for general operations.

12

Trends and Other Factors Affecting Our Business

We continue to experience increased levels of competition as
the health and wellness industry shifts towards a greater internet presence. This competitive environment continues to drive margin
pressure as deep discounting results from aggressive customer acquisition and retention actions. We continue to respond to the
increased levels of competition by expanding our product offerings through the introduction of new and diverse products, improving
our customer service and support, improving our reliability and speed of delivery and by adjusting our product mix and pricing.

The health and wellness industry continues to benefit from positive
demographic trends, with an aging population, and trends affecting health and lifestyle preferences, with an increasingly health
conscious consumer. In addition, the increasing cost of traditional healthcare has helped bolster demand for natural products to
help ward off more expensive medical visits and prescription drugs. Changes in these trends and other factors that we may not foresee
may also impact our business, including potential regulatory actions by the FDA and the FTC that may affect the viability of a
certain products that we offer.

Sources of Revenue

We derive our revenue principally through the sale of products
and freight billed to customers associated with the shipment of products. Net product sales accounted for approximately 96% and
95% of our total net sales, for the three months ended March 31, 2012 and 2011, respectively, with freight comprising the remainder.

Cost of Goods Sold and Operating Expenses

Cost of Goods Sold. Cost of goods sold consists primarily
of the cost of the product sold and the cost of shipping the products to the customers.

Fulfillment. Fulfillment expenses include
the costs of warehousing and shipping supplies, machinery and equipment, maintenance, employees, professional services and rent.

The following table sets forth certain condensed consolidated
statements of operations data as a percentage of net sales for the three months ended March 31, 2012 and 2011, respectively:

Three Months Ended

March 31,

(unaudited)

2012

2011

Net sales

100.0

%

100.0

%

Cost of goods sold

77.1

75.9

Gross profit

22.9

24.1

Operating expenses:

Fulfillment

10.1

7.7

Sales and marketing

10.9

8.1

General and administrative

9.8

11.8

Total operating expense

30.8

27.6

Operating loss

(7.9

)

(3.5

)

Net loss

(7.8

)%

(3.5

)%

13

Comparison of Three Months Ended March
31, 2012 to Three Months Ended March 31, 2011

Three Months Ended

March 31,

$

%

(unaudited)

Increase

Increase

2012

2011

(Decrease)

(Decrease)

(In thousands)

Third-party products

$

61,887

$

45,294

$

16,593

36.6

%

Proprietary products

18,014

15,750

2,264

14.4

Freight

3,691

2,718

973

35.8

Net sales

83,592

63,762

19,830

31.1

Cost of goods sold

64,444

48,395

16,049

33.2

Gross profit

$

19,148

$

15,367

$

3,781

24.6

%

Net Sales. Net sales increased approximately
$19.8 million, or 31.1 %, to $83.6 million for the three months ended March 31, 2012 compared to the three months ended March 31,
2011. Net sales of our third-party products increased $16.6 million, or 36.6% to $61.9 million for the three months ended
March 31, 2012. Net sales of our proprietary products increased $2.3 million, or 14.4%, to $18.0 million for the three months
ended March 31, 2012, and freight increased $1.0 million, or 35.8%, to $3.7 million for the three months ended March 31, 2012.

The increase in net sales was primarily the result of an increase
in our customer base and the number of shipped orders compared to the three months ended March 31, 2011. As of March 31, 2012,
we had 1.7 million active customers, an increase of 44% from March 31, 2011. For the three months ended March 31, 2012, we shipped
1.3 million orders, which represent a 51% increase over the three months ended March 31, 2011. The growth in active customers and
the number of shipped orders was due to a greater emphasis on new customer acquisition, as we expanded our customer marketing activities,
offered additional promotional offers and grew our network of affiliates and partners during the quarter. In July 2011, we began
distributing our products on Amazon.com and in October 2011 we launched our Refer-A-Friend campaign, both of which were significant
drivers of our new customer growth. Promotional offers are expected to continue for the foreseeable future.

Cost of Goods Sold. Cost of goods sold increased approximately
$16.0 million, or 33.2%, to $64.4 million for the three months ended March 31, 2012 compared to the three months ended March 31,
2011. As a percentage of net sales, cost of goods sold increased to 77.1% for the three months ended March 31, 2012 from 75.9%
for the three months ended March 31, 2011.

Gross Profit. Gross profit increased approximately
$3.8 million, or 24.6%, to $19.1 million for the three months ended March 31, 2012 compared to the three months ended March 31,
2011. Gross margin decreased to 22.9% for the three months ended March 31, 2012 from 24.1% for the three months ended March 31,
2011. The reduction in gross margin was related to greater promotional incentives on our proprietary branded products, combined
with a shift in our product mix towards third party products, which have a lower gross margin. The shift toward third party products
was primarily due to higher growth rates in our food and other non-VHMS product categories where we do not have a large proprietary
presence. This was partially offset by a reduction in our shipping costs per order, as we implemented a program to reduce shipping
expenses in the later part of 2011. These trends may continue as we intend to expand our third party product offerings at a faster
rate than our proprietary products.

Fulfillment. Fulfillment expense
increased approximately $3.5 million, or 70.3%, to $8.4 million for the three months ended March 31, 2012 compared to the
three months ended March 31, 2011. As a percentage of net sales, fulfillment expense increased to 10.1% for the three months
ended March 31, 2012 compared to 7.7% for the three months ended March 31, 2011. The period-over-period increase in
fulfillment expense as a percentage of sales was primarily attributable to the lower average order value in the quarter. The
increase in fulfillment costs on a dollar basis was primarily the result of an increase in the number of shipped orders and
costs associated with our freight reduction program. Excluding costs of the freight reduction program, fulfillment expenses
were consistent on a per order basis. We are investing in and aggressively working to improve our fulfillment efficiency,
while expanding our distribution capacity in an effort to reduce fulfillment expense on a per order basis. We expect to see
improvement by the end of this year.

Sales and Marketing. Sales and marketing expense
increased approximately $4.0 million, or 77.7%, to $9.1 million for the three months ended March 31, 2012 compared to the
three months ended March 31, 2011. As a percentage of net sales, expenses increased to 10.9% for the three months ended March
31, 2012 from 8.1% for the three months ended March 31, 2011. The increase in sales and marketing expense was primarily
related to a $1.8 million increase in fees paid to affiliates and partners associated with the expanded distribution of our
products. We also increased our advertising spend by $1.0 million, as we launched a national radio campaign and expanded our
online advertising presence in the quarter. Employee compensation costs also increased by $0.7 million, as we expanded our
marketing team to support our growth initiatives. We believe sales and marketing expenses may increase throughout 2012 as we
continue to invest in marketing initiatives to drive additional growth in our customer base.

14

General and Administrative. General and administrative
expenses increased approximately $0.7 million, or 8.9%, to $8.2 million for the three months ended March 31, 2012 compared to the
three months ended March 31, 2011. As a percentage of net sales, expenses decreased to 9.8% for the three months ended March 31,
2012 from 11.8% for the three months ended March 31, 2011. The period-over-period improvement in general and administrative expense
as a percentage of sales was primarily attributable to increased sales leverage on fixed costs. Included in the 2012 amount were
$0.6 million in expenses consisting primarily of the following: $0.2 million in severance paid to our former Interim Chief Financial
Officer and $0.2 million in fees associated with the Financing in the first quarter of 2012, and $0.1 million in additional legal
expenses associated with the Class Action lawsuit. Included in the 2011 amount were $0.6 million in expenses primarily related
to our equity capitalization issue and the strategic review. Excluding the aforementioned items in both periods, general and administrative
expenses increased $0.7 million period-over-period. The increase period-over-period was primarily attributable to increased employee
compensation costs due to headcount growth in critical departments, increased credit card fees due to higher sales, increased stock-based
compensation expense, and additional ongoing expenses. We expect general and administrative expense to increase throughout 2012
as we expand our information technology staff to support our future growth.

Income Tax. Income tax expense was an insignificant amount
and remained flat for the three months ended March 31, 2012 when compared to the same period in the prior year. This was a result
of reducing our net deferred tax assets to zero at December 31, 2010 and maintaining a valuation allowance on our deferred tax
assets though March 31, 2012.

Liquidity and Capital Resources

Liquidity. The significant components of our working
capital are cash and cash equivalents, inventory and accounts receivable, primarily from credit card processors, reduced by accounts
payable and accrued expenses. Cash and cash equivalents consist of cash and money market accounts. The working capital
characteristics of our business allow us to collect cash from sales to customers within a few business days of the related sale.
At March 31, 2012, we had a working capital of approximately $41.2 million.

Cash flows from operating activities. Net cash used
in operating activities was $4.9 million and $1.5 million for the three months ended March 31, 2012 and 2011, respectively.
The $3.4 million change in operating cash flows was primarily due to our increased net loss.

Cash flows from investing activities. Net cash (used
in) provided by investing activities was ($2.4 million) and $0.5 million for the three months ended March 31, 2012 and 2011, respectively.
The $2.9 million change in cash flows from investing activities was primarily due to an increase in capital expenditures and a
decrease in proceeds from maturities of securities available-for-sale as we liquidated all our securities available-for-sale during
the second quarter of 2011.

Cash flows from financing activities. Net cash provided
by (used in) financing activities was $34.9 million for the three months ended March 31, 2012 and an insignificant amount for the
three months ended March 31, 2011. The $34.9 million change in cash flows from financing activities was primarily due to the net
proceeds of $33.7 million from the Financing in the first quarter of 2012 and the increase in proceeds from the exercise of stock
options of $1.2 million.

Amounts deposited with third party financial institutions exceed
the Federal Deposit Insurance Corporation, or FDIC, and Securities Investor Protection Corporation, or SIPC, insurance limits,
as applicable. These cash and cash equivalent balances could be impacted if the underlying financial institutions fail
or are subjected to other adverse conditions in the financial markets. To date we have experienced no loss or lack of access
to our cash and cash equivalents; however, we can provide no assurances that access to our invested cash and cash equivalents will
not be impacted by adverse conditions in the financial markets.

Our future capital requirements will depend on many factors,
including:

·

the rate of our revenue growth;

·

the timing and extent of expenditures to enhance our website, network infrastructure, and transaction processing systems;

·

the extent of our advertising and marketing programs;

·

the efficiency of our fulfillment process and systems;

·

the levels of inventory we maintain; and

·

other factors relating to our business.

On February 16, 2012, we entered into the Purchase
Agreement pursuant to which the Investors purchased, and we sold, an aggregate of 4.9 million shares of our common stock at a
purchase price of $7.04 per share, and warrants to purchase an aggregate of 1.7 million shares of our common stock for an
aggregate purchase price of $34.8 million. The warrants have an exercise price of $7.04 per share and a term of four years.
The proceeds from the Financing will be used primarily to expand and optimize our distribution network. Of this amount, an
estimated $5.0 million will be used to complete the expansion of our existing distribution center in Lexington, North
Carolina and increase storage capacity at our other existing distribution center located in Las Vegas, Nevada. This is
expected to be substantially complete by the end of the second quarter 2012. In addition, an estimated $15.0 million will be used to invest in and
stock a third distribution center to support our high level of sales growth. We initially intended to begin investing in a
new facility in the second half of 2012, but due to the significant increase in our capacity associated with the distribution
center expansions in North Carolina and Nevada, we now expect to begin in 2013. We intend to use the remaining proceeds from
the Financing for general operations.

15

At March 31, 2012, we had $40.6 million in cash and cash equivalents.
For the three months ended March 31, 2012, our net cash used in operating activities was $4.9 million which was primarily due to
our net loss. We are in process of investing in our growth strategy which includes increasing our brand and company awareness,
expanding our customer base, growing our product assortment and expanding and optimizing our distribution capabilities. As a result,
we are working to increase our customers’ lifetime value by increasing the frequency of purchases and improving customer
retention, while also improving our operating efficiencies. We believe the implementation of our growth strategy will reduce our
net loss and our net cash used in operations in the future.

We believe that our cash and cash equivalents currently on hand
and our net cash flows from operations will be sufficient to continue our operations for the next twelve months, although we may
require additional financing in the future in order to execute our operating plan. We cannot predict whether future financing,
if any, will be in the form of equity, debt, or a combination of both. We may not be able to obtain additional funds on a timely
basis, on acceptable terms or at all.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results
of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP.

The preparation of these financial statements requires estimates
and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent
assets and liabilities in the consolidated financial statements and accompanying notes. Critical accounting policies are those
that are the most important to the portrayal of our financial condition and results of operations and require our most difficult,
subjective and complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Our significant accounting policies are described in more detail in the notes to our consolidated financial statements, and our
most critical accounting policies, pertain to revenue recognition, income taxes, stock-based compensation, contingencies, inventories
and goodwill. In applying such policies, we exercise our best judgment and best estimates. Actual results may differ from these
estimates under different assumptions or conditions. For a further discussion of these Critical Accounting Policies and Estimates,
refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form
10-K, as filed with the SEC on March 15, 2012 for the year ended December 31, 2011.

Recently Issued Accounting Standards

Refer to Note 1 to our consolidated financial statements included
in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding recently issued accounting standards
applicable to us.

ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of changes in the value of market
risk sensitive instruments caused by fluctuations in interest rates, foreign exchange rates and commodity prices. Changes in these
factors could cause fluctuations in the results of our operations and cash flows. However, we do not believe that a change in market
interest rates would have a material effect on our results of operations or financial condition. Although we derive a minor portion
of our sales outside of the U.S., all of our sales are denominated in U.S. dollars. We have limited exposure to financial market
risks, including changes in interest rates and foreign currency exchange rates. Inflation generally affects us by increasing costs
of raw materials, labor and equipment. We do not believe that inflation had any material effect on our results of operations in
the periods presented in our financial statements.

ITEM 4. CONTROLS
AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive
Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures,
as such term is defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report. Based upon such evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that those controls and procedures are effective to provide reasonable
assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated
and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded,
processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial
reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 during the quarter
ended March 31, 2012 that have materially affected or are reasonably likely to materially affect our internal control over financial
reporting.

16

Inherent Limitations on Effectiveness of Controls

Our management, including the Chief Executive Officer and Chief
Financial Officer, does not expect that our disclosure controls or internal control over financial reporting will prevent all errors
and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance
that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud,
if any, within Vitacost have been detected.

PART II.
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to Note 6 Contingencies, of our consolidated financial
statements included in Part I, Item I of this Quarterly Report on Form 10-Q for a discussion on the nature of the legal proceedings
against us, which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report,
you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form
10-K for the year ended December 31, 2011, which we hereby incorporate by reference into this Quarterly Report on Form 10-Q, and
which could materially affect our business, financial condition or operating results. While we believe that
there have been no material changes from the risk factors previously disclosed on our Annual Report on Form 10-K, the risks described
in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition
and/or operating results.

ITEM 2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On February 16, 2012, we entered into the
Purchase Agreement pursuant to which the Investors purchased, and we sold, an aggregate of 4.9 million shares of our common
stock at a purchase price of $7.04 per share, and warrants to purchase an aggregate of 1.7 million shares of common stock for
an aggregate purchase price of $34.8 million. The warrants have an exercise price of $7.04 per share and a term of four
years. The proceeds from the Financing will be used primarily to expand and optimize our distribution network. Of this
amount, an estimated $5.0 million will be used to complete the expansion of our existing distribution center in Lexington,
North Carolina and increase storage capacity at our other existing distribution center located in Las Vegas, Nevada. This
is expected to be substantially complete by the end of the second quarter 2012. In addition, an estimated $15.0 million
will be used to invest in and stock a third distribution center to support our high level of sales growth. We initially
intended to begin investing in a new facility in the second half of 2012, but due to the significant increase in our capacity
associated with the distribution center expansions in North Carolina and Nevada, we now expect to begin in 2013. We intend to
use the remaining proceeds from the Financing for general operations.

We issued shares of our common stock and warrants to purchase
shares of our common stock to the Investors in reliance upon the exemption from registration contained in Section 4(2) of the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder, including Regulation D.

Site Links

Based on public records. Inadvertent errors are possible. Getfilings.com does not guarantee the accuracy or timeliness of any information on this site. Use at your own risk.
This website is not associated with the SEC.